Mexico breaks record in FDI arrivals in the first quarter of 2021

Photo: El Economista

This figure represents the highest amount of Foreign Direct Investment received for a first-quarter since online records have been kept, that is, since 1999. 

According to data from the Ministry of Economy, Mexico captured 11.864 billion dollars of net inflows of Foreign Direct Investment (FDI) in the first quarter of 2021, a year-over-year increase of 14.8%. The figure represents the highest amount of FDI received for a first-quarter since online records have been kept, that is, since 1999.

Tatiana Clouthier, Secretary of Economy, highlighted the result in FDI arrivals in a complex context because of the Covid-19 pandemic and considering that the United Nations Conference on Trade and Development foresees a drop of between 5 and 10% in global flows of this type of capital worldwide in 2021.

The official informed that Mexico's record is due to several factors, mainly: confidence in the Mexican economy and implementing the USMCA (United States–Mexico–Canada Agreement).

As usual with this type of information, the figure will be adjusted when there is more information on the operations of that period. However, the amount is the net result, by company or trust, of the difference of 15.896 billion recorded as inflows and -4.032 billion in outflows. The flows were mostly from the reinvestment of earnings, although subsequent adjustment of the figures could change this result.

FDI recorded to date for January-March 2021 came from 1,872 companies with foreign capital participation, 883 trust contracts, and nine foreign legal entities.

In addition, it is made up as follows:

• By type of investment (source of financing): through reinvestment of earnings, 59.2%; through new investments, 18.6%; and through intercompany accounts, 22.2%.
• By sector: manufacturing, 46.6%; financial and insurance services, 14.6%; mining, 13.9%; commerce, 11.5%; energy, 3.4%; and temporary housing services, 3.2%. The remaining sectors attracted 6.8%.
• By country of origin: the United States, 42.5%; Spain, 12.1%; Luxembourg, 8.2%; the United Kingdom, 5.5%; Canada, 4.8%; and other countries contributed the remaining 26.9%. 

Luz María de la Mora, Undersecretary of Foreign Trade, highlighted the participation of the United States and Canada (Mexico's partners in the USMCA), as well as Spain (with 600 participating companies), and the growing share of China.

The Mexican economy averaged 2.34% economic growth from 1994 to 2019 but contracted 0.1% in 2019 and fell 6.5% in 2020.

Mexico is open to FDI in most economic sectors and has always been one of the largest recipients of these investments in emerging markets.

According to a U.S. State Department assessment, Mexico's proximity to this country, preferential access to its market, macroeconomic stability, large domestic market, growing consumer base, and increasingly skilled but inexpensive labor combine to attract foreign investors.

Still, recent regulatory changes have created doubts about the investment climate, particularly in energy. Mexico's government aims to raise FDI inflows to an annual average of $40 billion.

The methodology for determining FDI is based on international standards, contained in both the International Monetary Fund's Balance of Payments Manual and the Organization for Economic Cooperation and Development's (OECD) Framework Definition of Foreign Direct Investment.

FDI figures were jointly reviewed by the Ministry of Economy and Banco de México and will be integrated into the latter's Balance of Payments Report.

In recent months, important investment announcements for this year in Mexico were made public:

February

• Sempra Energy inaugurates the largest hydrocarbon maritime terminal built in Mexico in the new port of Veracruz, with an investment of around 300 million dollars.

April

• General Motors announces a new investment of 1 billion dollars to equip its plant in Ramos Arizpe, Coahuila, for the production of electric vehicles.
• Mercado Libre announced that this year it will invest 1.1 billion dollars, triple the amount it invested in 2020. It announced that it expects to create 4,700 new jobs.
• Grupo Financiero Santander announces it is investing 500 million dollars to improve infrastructure and customer service.

May

• Bosch reveals it will invest up to 100 million dollars this year to strengthen its production lines in its plants in Mexico.

Source: Morales, Roberto. (20 de mayo de 2021). México bate récord; llegadas de IED en el primer trimestre de 2021 suben 14.8%. 31 de mayo de 2021, de El Economista Sitio web: https://www.eleconomista.com.mx/empresas/Mexico-bate-record-llegadas-de-IED-en-el-primer-trimestre-de-2021-suben-14.8-20210520-0079.html